The Informational Content of Distant-Delivery Futures Contracts

Futures markets have two main goals: price discovery and risk management. Because management decisions often have to be made on a time horizon longer than the time until expiration of the nearby futures contract, it is important to determine how well distant-delivery futures contracts are able to assist in price discovery. We focus on soybean and live cattle distant-delivery futures contracts and test for the informational value added to nearby contracts. Two tests for information value provide partially conflicting results due to the different information measures employed. If being able to predict the price trend is sufficient, then we find some information value in distantdelivery futures contracts, while if accurate point estimates of future spot prices are desired the results are negative. Surprisingly, we do not find the expected dichotomy between the storable (soybeans) and non-storable (cattle) commodities.